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The SA Daily 24 June 2019

All depends on bold action

  • The SARB leading economic indicator, which is due out tomorrow, has been in contraction for six successive months implying near-term bleak economic outlook. The current business cycle downturn, which started in December 2013, is the longest in the history of SA’s economic downturns. GDP growth averaged 2.5% in 2013 and has since been moderating, averaging 0.8% last year.
  • The prolonged current economic downturn alongside the 3.2% q/q seasonally adjusted GDP contraction in 1Q19 is not inspiring for jobs prospects and requires urgent economic reform implementation. President Cyril Ramaphosa promised bold action and implementation during the SoNA last week and, if this is followed through, it will go a long way to boosting long-term economic growth and create much needed jobs for the youth. Financial assets such as the rand will also recover from their currently undervalued levels.
  • Reform implantation will also structurally reduce inflation and thus create space for meaningful monetary policy easing. Currently, the benign inflation environment alongside depressed economic growth call for monetary policy easing to provide some cyclical boost. We expect a 25 bps repo rate cut in 3Q19 and still see risks to our below-consensus 0.6% growth outlook for this year biased to the downside.

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